Casino stocks are set to rebound as the number of coronavirus cases slow, according to Bank of America.
The firm upgraded shares of Wynn Resorts and Las Vegas Sands to buy from neutral, sending shares of the casino stocks up 3.7% and 3.3%, respectively, on Wednesday. This is a reversal for Bank of America, which last month downgraded Wynn Resorts due to heightened fear about the spreading deadly virus.
The coronavirus "2nd derivative [is] leveling out," Bank of America research analyst Shaun Kelley said in a note to clients. "The sequential and daily growth rates have been stable/declining for approximately a week."
The Chinese coronavirus epidemic has dominated the news cycle this year, pressuring travel and casino stocks that operate in Macao. Shares of Wynn Resorts are down about 5% this year and shares of Las Vegas Sands are about flat for the year. The virus has killed more than 1,100 people and infected more than 44,800 people globally. However, Bank of America said the amount of new cases is declining meaningfully in the past week.
"Stock and investor reaction has been surprisingly muted relative to prior Macau corrections which we think owes to the passing nature of the threat and increasing China/global market liquidity," said Kelley.
The firm said the next catalyst for the stocks will be the reopening of casinos in Macau, which government officials closed for 15 days.
There is still risk of under-reported cases or a potential flare in the virus as workers return from the Chinese Lunar New Year, Kelley added.
Bank of America raised its price target on Las Vegas Sands to $80 per share from $72 per share. The firm has a $150 per share price target on Wynn Resorts.
— with reporting from CNBC's Michael Bloom.
